Sold software to my company

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I will of course be using my accountant to submit my SA tax return as always however I just wanted to get some information ahead of time (he usually does this work for me in the December preceeding the January deadline).

I have developed some software over a period of about 5 years personally (in my spare time) and away from any business/employment/my own Ltd companies etc - completely privately. I sold this software to my Ltd company (the company has other shareholders/investors as well as myself - I own 76.9%). The value of the transaction was ~£2m.

Question: for my SA tax calculation - what am I looking at roughly for liability? Presume its CGT? I have received no other income during the year whatsoever.

Thank you.

Replies (18)

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By Paul Crowley
14th Oct 2020 19:42

Do not think CGT.
It would have been a good idea to chat with the accountant last January, as clearly the development would have been on its way.

Did you sell it before December 2019?

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Replying to Paul Crowley:
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By jamesrm
14th Oct 2020 19:49

Thank you. The transaction/payment to me was early August 2019.

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By Paul Crowley
14th Oct 2020 20:02

Already happened before you had prior tax return done.
All tax planning opportunities lost

Do not enjoy talking to your accountant?

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Replying to Paul Crowley:
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By jamesrm
14th Oct 2020 20:16

Thanks Paul - in all honesty it was not something that could have been planned ahead of the transaction itself - the company raised funding from outside investors in order to buy the software from me and for the company to acquire that software (IP). Appreciate I should have spoken with my accountant at the point the transaction looked viable however can only learn from this!

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Replying to jamesrm:
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By Paul Crowley
15th Oct 2020 00:59

Talk to him now.
You have had 14 months since sale to talk to him.
He may suggest a couple of steps backward.
Tax on income tax rules exceeds £800,000. Any cash in the company yet?

If all investors money in then say £460,000

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Replying to jamesrm:
paddle steamer
By DJKL
15th Oct 2020 10:16

Strange the solicitors you used did not raise any tax issues or valuation concerns at the point of executing the transaction. Did the company issue new shares to the investors, was your ownership percentage diluted, did you sell some of your existing shares etc, surely there was some professional input at some point, for one thing someone surely registered the IP itself as who in their right mind would stump up £2m to buy something which does not have cast iron certainty it can be exploited in future?

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By chrisacc1985
14th Oct 2020 20:16

I agree that this will be trading income as oppose to capital income.

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By Wanderer
15th Oct 2020 01:24

Quote:
Sold software to my company

I will of course be using my accountant to submit my SA tax return as always however I just wanted to get some information ahead of time (he usually does this work for me in the December preceeding the January deadline).

I have developed some software over a period of about 5 years personally (in my spare time) and away from any business/employment/my own Ltd companies etc - completely privately. I sold this software to my Ltd company (the company has other shareholders/investors as well as myself - I own 76.9%). The value of the transaction was ~£2m.

Question: for my SA tax calculation - what am I looking at roughly for liability? Presume its CGT? I have received no other income during the year whatsoever.

Thank you.

Did you account for VAT on this?
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By Tax Dragon
15th Oct 2020 07:50

This has to be a wind-up. Noone but noone but noone would seriously be so stupid as to do this without taking advice.

If it's for real, tell your accountant and do so now. S/he won't want to be dealing with it in January.

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Replying to Tax Dragon:
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By Wanderer
15th Oct 2020 08:49

Quote:

Noone but noone but noone would seriously be so stupid as to do this without taking advice.

Could be lots of stupid people about, e.g. people who invest & acquire 23.1% of a company then allow it to transact with its founder for £2m, possibly from what they invested.
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By Tax Dragon
15th Oct 2020 09:44

I thought that too, but alongside the odd notion that such a founder wouldn't have the sense to come on Aweb. (It's Thursday, what do you want from me, logic?!)

The (tax) question at the heart of that thought is: what was the market value of the software?

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By User deleted
15th Oct 2020 08:38

£342,501.21

I will email my working to you later, just dashing off to the dentist.

I have not worked out the VAT, sure you can do that calculation yourself.

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By SouthCoastAcc
15th Oct 2020 09:41

With big numbers like that tell your accountant you want to discuss it with them asap and December is too late.

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By bettybobbymeggie
15th Oct 2020 11:15

[***]. Wind up, hopefully.

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By jamesrm
15th Oct 2020 12:14

Thanks all. A few comments based on the feedback.

It all seems like big numbers, and it is for me personally, but not for the company. We have raised ~£10m from investors plus made several £m sales.

£2m for software (technically its actually firmware) perhaps seems a lot but it is the key to making the hardware work correctly - and we've spent ~£7m perfecting the hardware. When the machine is ready it will sell for approx £1m per unit and we have about 30 orders lined up (handshake at this early stage) with some big players such as Airbus etc etc - all from word of mouth and no mention of the product publicly - yeah only handshake but assuming we convert 50% to orders then we've already made our entire investment back. The entire project will likely be worth tens if not hundreds of £millions.

So why £2m? Well, the firmware is highly specialist - its firmware that combines multiple physical manufacturing technologies inside one machine - this has never been achieved before. How else could the company get the firmware required? It would need to find an incredibly niche team of programmers which have both programming knowledge (in the language we use) plus expert knowledge of the 4 different manufacturing technologies we are combining. Assuming just a programmer/team of programmers without knowledge could come up with the same piece of firmware you'd be looking at a cost of about £5m let alone those with all the required skills (in all honesty I don't think such people exist or at least would be working hidden in labs with non competes). So at £2m, it is quite the saving.

More importantly (the financial investment is easy), would be TIME! The hardware side of the project should have been complete this year but pushed back to 2021 (hopefully) due to COVID (we blame this for everything of course) but also some technicalities and issues we ran into ourselves on the tech side.

So we'd need to find a team of programmers with specialist manufacturing technology knowledge, pay more than £5m for their expertise and then wait several years for them to create the firmware - or pay the founder who has already written it over the past 5-7 years from his 15 years working within the industry (having founded some other manufacturing technology companies which were acquired for big numbers).

Hope the above helps with the commercial logic.

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Replying to jamesrm:
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By Tax Dragon
15th Oct 2020 12:55

jamesrm wrote:

Hope the above helps with the commercial logic.

I wasn't questioning the commercial logic. Just the intelligence (or otherwise) of not taking advice. Which, honestly, sounds even more stupid given your explanations. Still, the identifiable damage at this stage is probably only about a million in tax, which isn't much in the scheme of things. (There's not enough to say - or, rather, I couldn't be bothered to read enough to see - whether the actual tax loss might be significantly higher.)

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By Paul Crowley
15th Oct 2020 13:06

Exasperated
All this done and no accountant involved or even aware

Reads now like a wonderful dream

Trouble is I have a client in same industry, everything on hold and airline industry on its knees, committing to nothing at all. My man is reservations software
He has released most of his staff. Others all on Flexi furlough

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Red Leader
By Red Leader
15th Oct 2020 15:26

£2m in this context is what we accountants call - altogether now - material!

Why do people not get that "tax planning" involves doing something before the action that is then decided upon? Ye gods.

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